Safeguard your business with eSignature best practices, and implement them confidently to support your business needs.
A recent report on GlobeNewswire, a global news network, predicts that the digital signature market will grow to reach a value of USD 7.99 billion by 2027. This growth is driven by the increasing use of digital signatures in industries like retail, healthcare, BFSI, government, and IT & telecom. These digital signatures make processes smoother, more transparent, and efficient while also reducing cybercrime risks. They have been especially helpful during the pandemic, enabling social distancing and remote work.
India is also embracing eSignatures due to government initiatives to promote digitalization across industries. This means the eSignature market in India is expected to grow significantly.
If you want to improve your eSignature workflows or learn more about this technology, you might be wondering about the legalities and validity of eSignatures in India. This article will explain everything you need to know about eSignatures in India, from what they are and how they work to their legal status.
In India, eSignatures are accepted as legitimate in legal proceedings, and the eSignatures or digital signatures produced by a Certifying Authority are considered legally valid.
In India, you can use eSignatures to sign contracts and legal documents easily. To understand how it works, we need to look at the relevant laws and regulations. These include the ITA, ICA, ESEATPR, Indian Stamp Act of 1899, and state stamp acts.
Here's what these laws help us with:
Recognizing valid "electronic signatures" accepted by the Indian government.
Identifying which documents or transactions cannot be done electronically.
Setting standards for contracts, including those with electronic signatures that may not fully meet the requirements under the ITA.
Determining if stamp duty is applicable to specific electronically entered transactions.
This legal framework ensures that businesses and individuals can safely use eSignatures while protecting their interests. According to the ITA, as long as a contract fulfils the essential elements of a valid contract under the ICA, it cannot be denied enforceability simply because it was conducted electronically.
To have a valid contract in India, certain important elements must be met, as outlined in Section 10 of the ICA. These elements are:
The parties involved must be capable of entering into a contract.
Both parties should willingly agree to the contract (meaning there must be a proper proposal and acceptance).
The contract should involve an exchange of something valuable between the parties (mutual consideration).
The contract should not involve any illegal activities.
It's essential to note that in Indian law, private contracts don't necessarily need a physical signature for validity. Instead, they must fulfil the requirements mentioned above to be legally binding and enforceable.
Traditionally, signatures were used to show agreement or make contracts official. However, with the internet's rapid growth, eSignatures have become the new way to sign agreements online.
Whether you have a small business or a big company, eSignatures offer a safe and efficient method to improve your workflows while keeping everything secure.
According to the ITA (Information Technology Act), a "digital signature" is when someone electronically authenticates a document or record following the rules in section 3 of the ITA.
To make sure your eSign is legally binding under the ITA, it must meet these requirements:
It should be "reliable."
It must use an authentication technique mentioned in the Second Schedule to the ITA.
You can consider an electronic signature "reliable" if it meets the following criteria:
The signature creation data or authentication data is linked only to the person who signed it.
At the time of signing, the signatory had control over the signature or authentication data, and no one else did.
Any changes made to the eSignature after it's applied can be detected.
Any changes made to the information after authentication can be detected.
There's a record of the steps taken during the signing process.
The digital signer certificates are issued by a Certifying Authority recognized by the Controller of Certifying Authorities appointed under the IT Act.
Moreover, according to the Second Schedule, you can authenticate an "electronic signature" or electronic record in two ways:
By using Aadhaar e-KYC services.
By using a third-party service, where the subscriber's key pair is generated, key pairs are stored on hardware security modules, and a digital signature is created. However, make sure this service is offered by a licensed Certifying Authority.
If you want to make your digital signature, the first step is to get a digital certificate from a licensed Certifying Authority. This certificate will let you create a unique and secure eSignature, which you can use to sign any document electronically, knowing that it can't be tampered with.
If you're considering using eSignatures for your business, it's essential to know which types of documents can be signed using this technology.
Most business contracts can be signed electronically, except for those mentioned in the First Schedule to the ITA. However, there are certain documents where electronic signatures are not allowed.
These documents include:
Negotiable instruments like promissory notes or bills of exchange, except for a cheque.
Wills and any other testamentary disposition.
Any contract for the sale or transfer of immovable property or any interest in such property.
So, while eSignatures can be a great tool for many documents, it's essential to be aware of these exceptions and use traditional signatures for such cases.
Understanding how different states handle eSignatures is crucial for navigating the legal landscape and ensuring compliance in your business.
Here are some key points to keep in mind:
The Indian Stamp Act and state stamp acts require certain instruments to be stamped before execution. However, they don't specifically address electronic records and their stamping method.
Many states, like Maharashtra, Gujarat, Karnataka, Delhi, Uttar Pradesh, Rajasthan, etc., have amended their stamp acts to include "electronic records" as part of the definition of an "instrument," which means eRecords might need stamping in those states.
An "instrument" refers to any document that creates, transfers, limits, extends, extinguishes, or records a right or liability.
If an eSignature meets the conditions outlined in the ITA, it is considered valid. If someone challenges its validity, they must prove the signature was invalid, not the party relying on the signature.
For non-ITA electronic signatures, the party seeking to enforce the signature may need to provide evidence showing that all the essentials of a valid contract, as per the ICA, were met, in addition to meeting the conditions mentioned above.
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